Cover by Benjamin Yoskovitz, Alistair Croll

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Chapter 27. Two-Sided Marketplaces: Lines in the Sand

Two-sided marketplaces are really a blend of two other models: e-commerce (because they’re built around transactions between buyers and sellers) and user-generated content (because they rely on sellers to create and manage listings whose quality affects the revenue and health of the marketplace). This means there’s a combination of analytics you need to care about.

There is another reason analytics matter to marketplaces. Sellers seldom have the sophistication to analyze pricing, the effectiveness of their pictures, or what copy sells best. As the marketplace owner, you can help them with this analysis. In fact, you can do it better than they can, because you have access to the aggregate data from all sellers on the site.

An individual merchant might not know what price to charge. Even if he could do the analysis, he wouldn’t have enough data points. But since you have access to all transactions, you may be able to help him optimize pricing (and improve your revenues along the way). Airbnb did this kind of experimental optimization on behalf of its vendors when it tested the impact of paid photography services on rental rates—then rolled the service out to property owners.

We’ve looked at both the e-commerce and UGC models in other chapters, but here we’ll briefly consider some of the unique challenges faced by two-sided marketplaces.

Transaction Size

Some marketplaces are for infrequent, big-ticket items (like houses), while others ...

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